Oaken Bucket v. Hamilton Cty. Property Tax
| Decision Date | 24 July 2009 |
| Docket Number | No. 49T10-0612-TA-113.,49T10-0612-TA-113. |
| Citation | 909 N.E.2d 1129 |
| Parties | OAKEN BUCKET PARTNERS, LLC, Petitioner, v. HAMILTON COUNTY PROPERTY TAX ASSESSMENT BOARD OF APPEALS and Hamilton County Assessor, Respondents. |
| Court | Indiana Tax Court |
Oaken Bucket Partners, LLC (Oaken Bucket) challenges the final determination of the Indiana Board of Tax Review (Indiana Board) which denied its property tax exemption application for the 2004 tax year (year at issue). The issue for review, as restated by the Court, is whether the Indiana Board erred when it determined that Oaken Bucket's real property was neither owned nor predominately used for religious/charitable purposes during the year at issue.
Oaken Bucket, a domestic limited liability company, owns the subject property: a two-story, multi-tenant office building, situated on the northeast corner of I-69 and Hague Road in Fishers, Indiana. During the year at issue, Oaken Bucket leased 28,000 square feet of its building to Heartland Church, Inc. (Heartland).1 The other portion of its building was initially leased to A.G. Edwards & Sons, Inc. (A.G.Edwards), and then to First Horizon Home Loan Corporation (First Horizon). All three of these lessees, under the terms of their triple net leases, paid an annual base rent and certain other expenses including property taxes to their landlords.2,3
On May 17, 2004, Oaken Bucket timely filed an exemption application (Form 136) with the Hamilton County Property Tax Assessment Board of Appeals (PTABOA), seeking a charitable/religious purposes exemption on the portion of its building leased to Heartland (hereinafter, the Heartland space). The PTABOA subsequently denied the application because it believed Oaken Bucket leased the property to Heartland "for a profitable gain per month[.]" (Cert. Admin. R. at 14.)
On July 21, 2004, Oaken Bucket filed a Petition for Review of Exemption (Form 132) with the Indiana Board. The Indiana Board conducted a hearing on the matter on July 13, 2006. At the hearing, Oaken Bucket claimed the Heartland space qualified for a charitable/religious purposes exemption, as it was owned, occupied, and predominately used for charitable/religious purposes. More specifically, Oaken Bucket claimed that the mere fact that it leased the majority of its building to Heartland demonstrated that it owned the Heartland space for charitable/religious purposes. (See Cert. Admin. R. at 412-13.) Oaken Bucket explained that through its leases with Heartland, it signified its express consent that the space be dedicated to, and used to further, Heartland's religious purposes. (See Cert. Admin. R. at 412-13.) To that end, Heartland's treasurer, Mr. David Wilkinson, explained that Heartland: provided two weekly Sunday worship services; operated a non-profit daycare ministry for approximately 100 children from Monday through Friday; facilitated weekly youth ministries, adult Bible studies, and fellowship dinners throughout the year; and offered various classes to better acquaint individuals with the church and its beliefs. (Cert. Admin. R. at 432-33.)
In addition, Oaken Bucket claimed that its charitable ownership and use of the property was exemplified by its decision to charge Heartland below market rent. (See Cert. Admin. R. at 411.) To support that claim, Oaken Bucket presented the A.G. Edwards lease and the First Horizon lease. The A.G. Edwards lease required A.G. Edwards to remit an annual base rent of $15.50 per square foot for approximately 9,500 square feet of space. (Cert. Admin. R. at 217.) First Horizon's lease required it to pay an annual base rent of $15.00 per square foot for 10,421 square feet of space. (Cert. Admin. R. at 226.) Furthermore, Mr. Wilkinson explained that he had recently "shopped" the area for rental properties and found that market rent in comparable buildings ranged from $15.00 to $17.00 per square foot. (Cert. Admin. R. at 451.) In contrast, Heartland leased 15,000 square feet of space for $8.00 per square foot and another 13,000 square feet for $6.00 per square foot per annum. (See Cert. Admin. R. at 158, 176, 445-46, 451-52.)
Finally, Mr. Warren Byrd, a member of the church, explained that the space was both owned and used for charitable/religious purposes because Heartland was "just a start up church with very few members" when it executed the leases with Oaken Bucket. (Cert. Admin. R. at 408.) Mr. Byrd explained that although Heartland's services had transitioned from its pastor's home to a room at the Holiday Inn, the church lacked the financial wherewithal to purchase or provide a down payment for a property of that size. (Cert. Admin. R. at 409, 452, 466.) According to Mr. Byrd, the below market rent ultimately allowed the church to conduct its services in a space and location that facilitated an expansion of its ministry. (See Cert. Admin. R. at 408-09, 466.)
The PTABOA, however, asserted that Oaken Bucket's ownership and use of the space had little to do with religion or benevolence.4 According to the PTABOA, Oaken Bucket's ownership and use of its property was analogous to that of any other landlord: it only owned and used the property for investment/profit-generating purposes. (See Cert. Admin. R. at 420, 468.) The PTABOA pointed to four aspects of Heartland's leases which it claimed evidenced a lack of charity on the part of Oaken Bucket.
The PTABOA first noted that Oaken Bucket had not dedicated the Heartland space exclusively to charitable/religious purposes because one of the lease provisions permitted the space to be used for commercial purposes. (See Cert. Admin. R. at 165 ¶ 4, 397, 471.) The PTABOA also claimed that Heartland's rent was actually "at or [just] slightly below [] market [rent.]" (Cert. Admin. R. at 397.) In support of that claim, the Hamilton County Assessor (Assessor) explained that she had retained the services of Mr. Timothy VanKirk, an MAI appraiser, to ascertain, inter alia, the market rent for triple net leases in the general area.5 (Cert. Admin. R. at 310, 475 (footnote added).) The Assessor then introduced a letter prepared by Mr. VanKirk in which he opined that market rent for a triple net lease was "$8.00 to $10.00 per square foot of building area." (Cert. Admin. R. at 310.)
Next, the Assessor suggested that Heartland's rent was probably lower than A.G. Edwards' rent because Heartland assumed all of its own build-out costs, while A.G. Edwards' landlord assumed its build-out costs.6 (See Cert. Admin. R. at 478-81 (footnote added).) Finally, the PTABOA asserted that besides charging rent, several of the lease provisions between Oaken Bucket and Heartland were "landlord friendly:" penalties for late rent payments, requiring security deposits, and requiring the tenant to pay for property taxes, utilities, and insurance. (Cert. Admin. R. at 394-95.) The PTABOA therefore asserted that Oaken Bucket owned and used the Heartland space to satisfy its profit needs, rather than its sense of gratuity/charity.
On November 16, 2006, the Indiana Board issued its final determination in which it concluded that Oaken Bucket had "failed to prove that it owns and uses [the Heartland space] in a predominately exempt (religious or charitable) manner." (Cert. Admin. R. at 121 ¶ 36.) In so concluding, the Indiana Board found that Oaken Bucket failed to demonstrate that its property was "owned or used ... for anything other than an investment[,]" given that Oaken Bucket had, for the most part, charged market rent for the Heartland space. (See Cert. Admin. R. at 119-20 ¶¶ 28-30.) As such, the Indiana Board affirmed the PTABOA's denial of Oaken Bucket's exemption application.
On December 29, 2006, Oaken Bucket initiated this original tax appeal. The Court heard the parties' oral arguments on June 23, 2008. Additional facts will be supplied as necessary.
When this Court reviews a final determination of the Indiana Board, it is limited to determining whether it is:
(1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(2) contrary to constitutional right, power, privilege, or immunity;
(3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory jurisdiction, authority, or limitations;
(4) without observance of procedure required by law; or
(5) unsupported by substantial or reliable evidence.
IND.CODE ANN. § 33-26-6-6(e)(1)-(5) (West 2009). The party seeking to overturn the Indiana Board's final determination bears the burden of establishing its invalidity. Osolo Twp. Assessor v. Elkhart Maple Lane Assocs., 789 N.E.2d 109, 111 (Ind. Tax Ct.2003).
In Indiana, all tangible property is subject to taxation. See IND.CODE ANN. § 6-1.1-2-1 (West 2009). Nevertheless, the Indiana Constitution provides that the legislature may exempt certain categories of property from taxation. See IND. CONST. art. X, § 1. Pursuant to this grant of authority, the legislature enacted Indiana Code § 6-1.1-10-16 which, during the year at issue, provided that "[a]ll or part of a building is exempt from property taxation if it is owned, occupied, and [predominately] used ... for ... religious[] or charitable purposes." IND.CODE ANN. § 6-1.1-10-16(a) (West 2004). See also IND.CODE ANN § 6-1.1-10-36.3(a) (West 2004) (). This exemption also generally extended to the land on which the exempt building was situated. A.I.C. § 6-1.1-10-16(c).
While the taxpayer bears the burden of establishing that it is entitled to the exemption it seeks, it need not show a unity of ownership, occupancy, and use in order to fulfill that burden. See Sangralea Boys Fund,...
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